On the theme of “survival”, the features that are picked as of most value in a project by conservative industrial consumers of REE’s are quite different to those picked by shorter term investors. The progress made by Matamec is a good demonstration – the Kipawa deposit is one of the lowest grade in the sector, yet they managed to attract Toyota as a partner.

REE consumers are seeking a low risk alternative to Chinese REE’s. So on top of deposit metrics, access to chemicals, access to skilled labour and access to sensible and robust transport routes are all key. Ability to finance is also a critical question for survival – companies with enterprise values in the low tens of millions have trouble with presenting a credible story to raise the billion needed for development.

Congrats again to Adamas for some well considered and presented work.

I would like to share a rather interesting fact sheet I landed on recently. It is for a company in Burundi. I have no connections to them at all (though geographically I do not live far from them) and I do not vouch for the correctness / accuracy of what they are presenting. But it is

54.3% TREO, 1.1% HREO, 15.9% CREO and C$ 4.5M (four point five million) CAPEX!

Not only is the combination of their key metrics even ‘funny’, it becomes even more interesting because their “ore-value” and “capital intensity” parameters are actually magnitudes of desire-ability higher than for all the rest of the RE projects worldwide!

For quite sometime you could tell the dishonest ones from the fact that they would try to hide the more common metrics as much as possible while touting the grade (at first they were touting the grade). You can now see them continue to reference their late 2011 or early 2012 PEA IRRs and NPVs even when within these, their current basket prices were considered too low, they did not even include them in their sensitivity analyses. I need to congratulate Matamec for being honest with their FS results because I am sure it is far much worse for many others.

It became a bit quite obvious to me, and I am sure to others as well, that the more potential by-products you have the more likely your are to survive. I can see, and I believe that so do many others, that those with more by-products can very easily have far much better economics (if they can technologically make it) even when they have – for example relatively very low grades.

What I am seeing now, and I guess so do many others, is this focus on very high grades of HREOs within the REOs mix when actually for many of these deposits, it is just yttrium oxide making the difference. Yttrium oxide which is for example currently 100-200 times less expensive than scandium! and maybe projected to remain at least 100 times less expensive in the medium to long term. What could happen to these projects, in the medium term, when there is a yttrium oxide glut – or when much cheaper yttrium oxide from those with many other by-products, becomes available to the markets? Or is this not all possible?

Given the calibre of the people contributing to this stream, I need not go further; and i hope that the Adamas report did address this as well as many more.

One missing factor, and critical to my perspective on who wins in the end, is the quality of management. In my opinion too many companies are run by good general managers instead of good executive managers. All companies need both, but they are different jobs and different people. A good general manager will take a $1,000 and make it last longer, go further, do more with it, than a poor one. Those people should run production plants. A good executive manager will take $1,000 and turn it into $1,000,000. Those people should run companies. (A bad manager of either kind with take $1,000 and turn it into zero.)

My prediction is that if the Adamas list turns out to be wrong in the future, it will be the CEO making the difference. We’ve seen some of this already in this sector. Quantifying the management is harder than the financial metrics traditionally used of course which is one reason they are missed off analyses.

That said, I repeat that the continued move from speculative reports and opinion, to solid analysis is fabulous to see.

Allan

It’s my view that the industry really has to focus much more aggressively on the end game – the production and cashflow. There is too much focus on resources etc, which is not really the issue. Ryan’s report makes an admirable attempt at doing this, taking each project through to its logical conclusion and really scrutinising the economics. Whilst there are many different ways of doing this, which would provide different results, this doesn’t mean it shouldn’t be done at all.

He addresses the elephant in the room that a lack of easily comparable metrics (in my opinion basket prices and costing methodologies are a particular concern) in the industry means a lot of information is misleading (if not intentionally) and unless this is sorted out investors and financiers will not have confidence in these projects. Again, there may be many alternate metrics that people prefer (I have some of my own, it appears TMR do too, and I assume most investors have there’s too), but the point is doing it in the first place.

This is not an investor stock picking report, its a serious piece of analysis, almost to academic levels in its analytical rigour. As an industry we need these kind of reports.

Thanks you very much for your response and clarifications. But, you may understand my skepticism amid the myriad of reports and assessments that have been read and digested over the past 5 years or so, often causing much indigestion. And though this report may be within the financial grasp of some investors, I’m not one of them. Still, thanks.

Tim: Our report does not simply round off well-discussed ideas, but instead puts quantifiable data and fact to much of the hearsay and unfounded opinions that float around the industry. For example, we don’t simply acknowledge the lack of processing capacity outside of China, we quantified it. We don’t just acknowledge the problems with junior’s basket price discounts, but instead propose separation costs for the different REE concentrates they will produce and discount their basket prices using a proprietary methodology. We don’t just acknowledge the misleading metrics and ambiguous reporting practices that have pervaded the industry, we detail each one specifically and highlight which ones are in discordance with NI 43-101 or other standards. All of this (and much more) are contained within the ‘stage-setting’ Landscape portion of the report whereas the real meat and potatoes are delivered in the Analysis. In the Analysis we offer a normalized cross-comparison of the projects, which is something you will not find anywhere else, especially on a free site. I appreciate your skepticism, however, and hope I’ve helped clear things up a bit.

Cris: Our report does not highlight opportunities to invest in survivors but instead ranks the landscape of projects on a set of comparative parameters to examine how each project stacks up. We acknowledge the existence of different flavored projects for different investor appetites. Our ranking does a nice job of highlighting which projects hold the greatest economic promise, and, recognizing that investors are as unique as the projects themselves, we provide all of the underlying data so clients can spin their own comparison if they so choose. If by ‘survivors’ you mean investing in the losers of the shakeout, which will be presumably low-cost, we do not propose this either. As the shakeout escalates the winners will seize the market’s limited demand thus even under new management or under the direction of a new PEA, PFS, or FS, the losers will find no demand in the medium to long-term (15 to 20 years). Not to say, however, that some of these projects won’t resurface in the distant future, so if you’re looking to go decades-long on one of today’s losers your grandchildren may thank you in 2030.

Gordon: Thanks for your thoughts – I agree and disagree. I believe the industry has reached a precipice of sorts and can no longer afford to keep it muddling forward. Take GWMG for example, which has decided not to invest further in Hoidas Lake as per its recent MoU with Star Uranium. Or Canada Rare Earth Corp. which has left the future of its three projects up in the air while shifting its focus to the development of rare-earth processing facilities with partner CEC Rare Earth Corp. Keep an eye on the juniors with multiple projects as we believe some of their projects could be the first to be shaken-off (or put into hibernation) as companies focus their limited resources on developing their flagships.